According to Circuit Judges David S. Tatel, who wrote the majority opinion for the three judge panel, the FCC was empowered to enforce some form of net neutrality as Congress granted the FCC enforcement powers to create a "vibrant and competitive free market" (47 U.S.C. § 230 Chapter 5, Subchapter II, created by The Communications Act of 1934 [PDF], modified by the Telecommunications Act of 1996). The outcome was the same as the first case only because the appeals court felt the FCC's rules treated carriers themselves in arbitrary and discriminatory way, choosing only some of the time to enforce its rules.

In its Verizon v. FCC decision, the Court of Appeals invited the Commission to act to preserve a free and open Internet. I accept that invitation, and in the coming days, I will be outlining how I propose to proceed.
...We can't just kick the can down the road. We have an obligation to act now with the principles that have been transmitted to us in the form of statutes, judicial and regulatory precedents, scholarship, and experience.

His organization must now find a way to eliminate or navigate around a hurdle that his predecessors created.

II. Reclassification?

The debate revolves to what constitutes a "common carrier". In the early days of the internet, traffic traveled over phone lines so enforcement on common carriers (landlines) meant effective enforcement on all internet service providers. With the advent of fiber optic internet, internet service providers pushed the FCC to classify them as "broadband" -- a new communications class -- to prevent subjecting the fledgling infrastructure to overly onerous regulation. The FCC agreed with this logic and classified them different.

This would come back to bite it, as the key reason why the circuit court viewed the FCC's enforcement as arbitrary was because the law only empowered it to enforce a free internet market on "common carriers" -- dialup internet providers. Broadband, according to the court, was exempt on a technicality that the FCC itself made up.

The FCC may have to try to reclassify broadband providers as a "common carrier" in order to regulate them under current laws. [Image Source: Guardian UK]

The FCC could opt to reclassify broadband as a common carrier, which is perhaps its best option. But that would likely provoke outrage from broadband service providers, which would likely argue that the move would not only subject them to net neutrality regulation, but other policies that applied to landlines (and dialup internet) which might be punitive or nonsensical for broadband.

The only other apparent option would be to update the law to include promoting a free market among "broadband providers" and "common carriers" alike. That arguably is the most appealing option in that it would be unlikely to generate as much resistance from broadband providers.

But for political reasons that option is basically off the table, at present.

III. Don't Expect a Bailout From Congress

The root of the problem lies in that while some broadband providers (like Verizon Inc. (VZ) are not opposed to mild, rigidly defined net neutrality, others oppose it in an absolute sense. These broadband providers -- such as Comcast Corp. (CMCSA) -- are vigorously opposed to any sort of regulation as they believe they should be "free" to adopt creative new pricing schemes to not only charge users for services, but also demand tolls from users access sites and from the sites to serve the user.

Given that they control the U.S. House and that they have drafted bills looking to explicitly forbid the FCC from any sort of net neutrality regulation, it seems unlikely that any bill to clarify and codify net neutrality would make it in the House (even if it was passed by the Democratic-controlled Senate).

Congress is deadlocked on the issue of net neutrality. [Image Source: U.S. Congress]

Mr. Wheeler acknowledged this reality in his speech.

But while the deadlock means Congress won't be riding in on a horse to save the FCC's net neutrality legislatively, it's more than happy to vent its frustrations and concerns at the commissioners.

Consumers, entrepreneurs and innovators deserve to know their right to view or use the content and services of their choice online will be protected.

In other words, Mr. Wheeler may be choosing the best route in embracing the court ruling, but he better figure out a way to convince service providers to tolerate reclassification or figure out a clever alternative or the internet content industry and consumers will remain vulnerable to abuse.